Cash squeeze claim a Downer

Downer EDI
chief executive
Geoff Knox
has denied any impropriety by the contracting group following reports it was squeezing creditors to meet annual cash-flow targets.

The engineering and construction group was in damage control yesterday after an email from the chief financial officer of Downer’s Works division, Chris Storey, was made public.

Sent earlier this month, it implored senior managers to defer supplier payments where possible or the division would risk recording a net cash outflow for the year. “This result is unacceptable," Mr Storey wrote.

Mr Knox admitted to The Australian Financial Review yesterday that the email was poorly worded and expressed regret at its leaking.

But he did not regard it as evidence of any wrongdoing or a matter that should have been disclosed to the market.

“It’s standard business," he said. “You deal with your builder at home and you watch him looking for payment so he can pay his subbies. He’s not able to pay until he gets paid himself. This is no different."

Shares in Downer continued their downward slide yesterday, losing 25¢ to close at $3.74. The stock has lost 60 per cent of its value since the start of the year.

Downer’s capital position has been under scrutiny in recent months due to its involvement on the troublesome Waratah rail project with the NSW government. Earlier this month Downer announced a $190 million provision on its $1.9 billion contract, and speculation persists that it will need to raise equity to support the project.

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“The position has arisen principally as a result of the failure to achieve targets and execute work appropriately, leading to a high value of disputed amounts that have not been dealt with in a timely manner.

“Given over 70 per cent of Works’ revenue is derived from government at federal, state and council levels, with what is rather vanilla work, the question that needs to be asked is why and how is this happening."

A report from Goldman Sachs JBWere analyst Chris Savage, prepared before the leaked email was made public, did nothing to help the company’s plight yesterday. Mr Savage drew attention to the potential for further provisions on the Waratah contract and an equity raising, either for Waratah or new mining contracts.

Mr Knox confirmed that Mr Storey’s job was not in danger, nor would he face disciplinary action over the email. “The guy’s doing what we’ve asked him to do. It’s just we need to teach him how to write his emails in a more eloquent way."